Hovnanian Enterprises, Inc.

Good morning and thank you for joining us today for Hovnanian Enterprises fiscal 2026 second quarter earnings conference call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the second quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the investor's page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website at I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

Thank you, DeeDee, and thank you all for participating in this morning's call to review the results for our second quarter. All statements in this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations with respect to financial results for future financial periods. Although we believe that our plans, intentions, and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. By their nature, forward-looking statements speak only as the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors such as risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors and Management Discussion and Analysis, particularly the portion of MDMA entitled Safe Harbor Statement and our annual report on Form 10-K for the fiscal year ended October 31st, 2025, and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable security laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reasons. Joining me today are Ara Hovnanian, Chairman and CEO, Brad O'Connor, CFO, David Michelson, Vice President, Corporate Controller, Paul Eberle, Vice President, Finance and Treasurer. I'll now turn the call over to Ara.

Thanks, Jeff. Before we begin, let's take a moment to remember Ed Kangas, who passed this week. As our longest-serving independent director, chair of our audit committee, and lead independent director, Ed brought valued judgment, integrity, and steady guidance to our board and our management team. His leadership and his dedication to Hovnanian spanned many years as he joined our board shortly after retiring as chairman of Deloitte. Beyond as many professional contributions, he was also a trusted friend who will be deeply missed by everyone that knew him. The board of directors and everyone at the company extends our heartfelt condolences for his family. I'll also apologize in advance if my voice sounds raspy. I'm on the tail end of a nasty virus that hopefully will be gone soon. moving on to our results for the quarter i'll begin with a quick overview of our second quarter results and the progress we're making against our strategy in today's housing environment brad will then follow me with more details on our financial performance capital position and outlook before we open the floor for questions turning to slide five this Slide highlights our second quarter performance relative to the guidance we provided at the start of the period. Despite a continued choppy demand environment, we delivered solid execution coming in at or above nearly all of our targeted metrics, including a meaningful outperformance in our adjusted gross margin. Starting on the top line, we generated total revenues of $668 million, close to the midpoint of our projected range. Notably, our adjusted gross margin was 14.3% for the quarter, exceeding the upper end of our forecast and improving sequentially from 13.4% in the first quarter, which we believe marked the trough. We projected a trough in the first quarter with a rebound beginning in the second quarter and that scenario has come to fruition. Our SG&A came in at 12.6% right at the lower end and thus better end of what we expected. Our unconsolidated joint ventures contributed a million dollar loss this quarter, modestly below our expectations. This reflects startup costs ahead of our first deliveries in several joint venture communities, which is typical in the early stages of these projects. For the quarter, our adjusted EBITDA reached $41 million, coming in above our projected range. and our adjusted pre-tax income totaled $9 million, landing at the top end of our forecasted range. Stepping back, the results of this quarter reflect the core of our current approach, supporting affordability with targeted mortgage rate buy-downs to maintain sales pace while we work through older, lower-margin lots and quick move-in inventories. At the same time, we're transitioning toward newer communities where today's incentive environment is already built into the land underwriting, which we believe supports a path to better margins and returns over time. On slide six, you'll see this year's second quarter results along last year's second quarter. These comparisons are more challenging given the lower delivery volume, slower housing market, and higher incentives in the current market, but it also helps illustrate the progress we're making as the business transitions to a better margin profile. Total revenues declined 3% year over year, primarily because we delivered 12% fewer homes amid a more competitive selling environment. A land sale completed during the second quarter partially offset the impact of lower deliveries. Adjusted gross margin was lower than a year ago, largely due to the higher incentives used to support affordability and sustain sales pace. Importantly, these incentives are deliberate target levers in our current strategy, and again, as we efficiently work through older, lower margin lots and quick move-in inventory. Despite the year-over-year decline, gross margin improved sequentially in the second quarter. As I mentioned earlier, we believe the first quarter represented a trough. Looking ahead, we expect margins to benefit as we continue to open and deliver from newer communities where today's incentive environment was already incorporated in land underwriting. Assuming the market doesn't require meaningfully higher incentives, we believe this mixed shift supports a continued gradual improvement trend. During the second quarter, incentives represented 11.9% of our average sales price, with the majority tied to mortgage rate buy downs. Compared to the first quarter of 26, This represented a 70 basis point decline and marks the first time in nearly two years that incentive levels have decreased sequentially. We'll show more detail on the incentive trends in a few slides. Offsetting the year-over-year incentives, our construction costs decreased 2% year-over-year in the second quarter. Additionally, cycle times for single-family homes improved by six days to 138 calendar days versus the same quarter last year. SG&A increased modestly year over year, largely reflecting lower revenue. Even so, profitability for the quarter came in at the upper end of our guidance range. We continue to prioritize disciplined inventory management and a steady sales pace, positioning ourselves to capitalize on attractive land opportunities that we're finding in the marketplace. I'll repeat myself again, but we believe these new land purchases can drive stronger margins and improve returns, given that we're underwriting with heavy incentives today. Looking at the sales environment in slide seven, we had a slight year-over-year increase of 38 contracts in a home-selling environment that was impacted by decreasing consumer confidence. Without the incentives we're offering, we believe that our contracts would have decreased dramatically compared to year-ago levels due to ongoing market challenges and low consumer confidence. If you look at slide eight, you'll notice that the monthly community traffic through November and April mostly trended up with four of the six months showing strong year-over-year gains, while the last two months showed some softening among increased macro uncertainty related to the Iran war, April's rate of decline moderated versus March, which we view as a constructive signal. Our takeaway from this chart is that underlying demand and interest from consumers remains present, and as uncertainty eases, we believe the demand can translate to improved sales activity. As shown on slide 9, Contracts over the past 12 months have fluctuated month to month, reflecting a volatile housing market and shifts in consumer confidence. February's gain was the strongest year-over-year increase on the slide, followed by an 8% year-over-year decline in March, impacted by the start of the Iran war, and then a 3% increase in April. As of yesterday, our month-to-date contracts in May were up 12% versus the prior year, which would represent an increased trend if it holds through the end of the month. On slide 10, despite the impact of the war, you can see that second quarter contracts per community increased ever so slightly compared to last year. This year's 11.3 contracts per community was close to the average second quarter absorption pace since 97. On slide 11, we provide a closer look at monthly contracts per community comparing each month to the second in the second quarter to the same month last year. For February, the first month of the quarter, The sales pace was significantly higher than the same month last year, but the March sales pace was worse than a year ago. And then April was flat year over year. Summing up the slide in one word, the environment is choppy. If you refer to slide 12, We present contracts per community as if our quarter ended on March 31, which allows for a direct comparison with all of our peers that report contracts per community on a calendar quarter basis, which is most of them. Our 11.2 contracts per community sales pace ranks as the second highest among publicly traded homebuilders on this slide. As illustrated on slide 13, our contracts per community increased 4% year-over-year. We are one of only two builders on this slide with year-over-year increases for this metric. Again, our performance for these comparisons was based on an adjusted quarter ending in March for us, which allows us to have a direct comparison to our peers. Takeaway from these two slides is clear. Our focus on sales pace over price is delivering above average sales results and helping us work through older, less profitable communities more quickly. You turn to slide 14, you can see which tracks incentives. And if you look to the blue bar on the right, you can see what I mentioned earlier that incentives have finally begun to decline after three years of increases. The most dramatic jump happened at the start of 23 when incentives climbed from 3.9% in the fourth quarter of 22 to 7.4% in the first quarter of 23. Incentives have steadily increased over the past three years. While these higher incentives have put short-term pressure on our margins, they've been essential for maintaining a steady sales pace and allowing us to move our inventory. Even though we saw incentives decrease in the second quarter from the first quarter, it's still up 140 basis points compared to a year ago and higher by 890 basis points versus the full year in 22, which is the last full year of normal incentives before mortgage rates spiked and it began to affect our margins and our deliveries. To make homeownership more accessible for homebuyers, and again, moving through our inventory, we provided a variety of quick move-in homes across our communities. It gives buyers an opportunity to benefit from the incentives, lock their mortgage rate, and purchase a home faster and at a more affordable monthly cost. It's important to note that our recent land acquisitions, again, are underwritten to include these incentives while still meeting our return targets. As our new communities come online, again, I'll keep repeating this, we do expect to see stronger margins going forward. On slide 15, you'll see that at the end of the second quarter, we had 5.8 quick move-ins per community. This pretty much matches the previous quarter and highlights our progress in streamlining our inventory. By closely coordinating starts with our sales pace, we've reduced our QMI count and kept inventory levels balanced. QMIs are homes that are under construction the moment they begin or have completed that haven't yet been sold. Looking at slide 16. Our number of QMIs have dropped from 1,163 at the end of January of 25 to 731 at the end of April of 26, a 37% reduction in just over a year. In the second quarter, QMIs accounted for 68% of total sales. While this is down from the previous high of 79%, it's significantly higher than our historical average of about 40%. Meanwhile, sales of to-be-built homes, those constructed based on customers' orders, rose from 21% to 32%. If these patterns hold, we expect to see more to-be-built deliveries in the second half of 26 and into fiscal 27. as is typical, to-be-built margins in the second quarter were higher than our QMI margins. Having more to-be-built deliveries going forward will be beneficial to our gross margin and our overall profitability. With our current inventory of 731 quick move-in homes We're well positioned to satisfy existing home buyer demand. We'll continue to adjust our starts as needed, making sure we maintain the right balance. Enough QMIs to meet demand without overshooting. This strategy allows us to sign contracts and close on homes more quickly within the same quarter, leading to fewer homes left in backlog and a higher conversion rate from backlog to deliveries. In the second quarter of 26, 41% of the homes we delivered were both sold and closed in the same quarter. That's the highest percentage we've recorded since we began tracking this metric in 23. While this makes it a bit harder to predict next quarter results, it led to a backlog conversion rate of 85%, much higher than a historical average of 61% for the second quarter since 98. We continue to closely manage our QMIs for each quarter, making sure that the rate at which we start homes matches the rate at which we sell them. We try to sell the QMIs before they're finished. Over the past year, our finished QMIs decreased 55%. from 304 at the end of last year's second quarter to 137 finished QMI's at the end of the second quarter of 26. If you look at slide 17, you'll see that despite higher mortgage rates, and slower sales pace nationwide, we managed to increase prices, net prices, in 44% of our communities during the second quarter. This quarter, we raised prices or decreased incentives in a larger percentage of our communities than we have over the last two years. As the number of communities with price increases has increased, so is the geographic dispersion of those communities. To wrap up, we're actively managing our inventory to speed up sales of quick move-in homes, steadily clearing our lower margin land, and keeping our sales pace consistent. At the same time, we're positioning ourselves to capitalize on new land opportunities that promise better margins and higher returns. I'll now turn it over to Brad O'Connor with hopefully a less raspy voice than mine, our Chief Financial Officer. Take it away, Brad.